The Somersett Owners Association’s Board President has called a Special Meeting of the Board of Directors for Thursday July 31, 2014 at 5:30 PM to be held at The Club at Town Center.
Per the published agenda, this special meeting has been called to address “Discussion and Approval Regarding Town Square Lots”. No details on what is to be discussed and approved were given. However, given past discussions, one may speculate that it relates to purchase of one or more of the town square lots for incorporation into the Association. All homeowners are encouraged to attend and ask questions or voice opinions.
The meeting agenda may be accessed via the following link.
The following SOA Board of Directors response to the Country Club Purchase Agreement delay was recently posted on the Frequently Asked Questions List on the mysomersett.com website.
“Question 17: Why has finalizing the agreement taken so long, given that the Letter of Intent (LOI) was signed in November?
Answer 17: This process has taken much longer than we had anticipated when we first started the negotiations. As of today (July 8, 2014), the contracts have not yet been finalized or signed. A number of issues have contributed to the overall time so far. The biggest contributor to the length of time it is taking is the negotiation of subordinate points. As has been discussed many times, the LOI contained the broad outline of the proposed agreement. It covered what the SOA and SGCC felt were the most critical points to which the parties agreed. It was always known that there were many other details that would have to be agreed upon before any final agreement would be signed. These additional details are important for how the agreements between the SOA, the SGCC, and the Developer will be implemented. Given that these agreements may be in effect for 50 years or more, it is important to address as many of these as we can reasonably anticipate. One of the lessons learned from previous contracts between the SOA and the SGCC is that the lack of sufficient detail and specificity led to disagreements, sometimes substantial ones, over what was intended or required by the contract. This is a very complex deal which will require putting three separate but interrelated contract in place.
Another source of delay came from the calendar. The LOI was signed shortly before Thanksgiving. Because of the Thanksgiving and Christmas holidays and the related travel plans and commitments of various participants, negotiations concerning these subsequent issues did not get started until partway into January. As we got further into this process, new issues that neither party initially identified would become evident, and we would have to sidetrack to address those. Ultimately, this has been a very iterative process where new issues arise and we then have to go back to make sure the proposed solutions were not inconsistent with something else that we had already agreed. It took about four months to address roughly 90 percent of the open items, with the last few issues dragging out a while.
Also, the need to coordinate with the attorneys for the SOA and SGCC has contributed to some unexpected delays. The approach we have taken is that the bulk of the substantive agreements were negotiated directly between the SOA and SGCC representatives. Once most items had been agreed, the information was provided to the attorneys to draft contracts for review by the negotiators. The review of draft documents and resolution of comments also has required multiple rounds of discussion and has taken a substantial amount of time. Coordinating schedules between multiple negotiators, their respective attorneys, and various others has been a challenge. Remember, all of the negotiators are volunteers with other commitments, and the attorneys have other clients, so nobody has been working on this full time.
The bottom line is that we decided to take the time needed to address all of the identified issues as best we can to avoid as many future problems as possible with the implementation of these agreements.”
A lot of words, but no details on what the “new issues, “open items”, and “negotiation of subordinate points” consist of. Perhaps some are too sensitive to negotiations to reveal at this time, but it would be informative to be advised of any projected changes to the original Letter of Intent, rather than be surprised downstream.
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To date the Somersett Owners Association (SOA) Board of Directors (BOD) has declined to provide Somersett Country Club (SGCC) financial data in support of the proposed new agreement with the SGCC. They consider it irrelevant to the decision on how one should vote. Somersett United does not agree with this assessment, believing it important to one’s decision-making process. Therefore, following is a summary of SGCC financial data obtained from IRS Form 990 submittals, except for 2014, which represent projections.
Year the Developer (Somersett Development Company) accomplished early turnover to the SGCC Equity Members. Operating loss (Revenue less Expenses) was $560K.
First year SGCC was run entirely by Equity Members. Operating loss was $628K.
In late 2011, the Developer controlled BOD voted to divert $15/month of homeowner assessments to the SGCC via a “Lease Agreement” in exchange for some SGCC access amenities of questionable value. Agreement was to run for three years starting in January 2012 with optional 3 and 4 year renewal periods. In 2012, the SOA revenue erased SGCC’s operating loss resulting in a +$32K net gain.
Existing agreement stayed in place, which again erased the SGCC’s 2013 operating loss resulting in a +$104K net gain. Equity member monthly dues reduced from $425/month to $395/month.
In mid 2013, a complaint was generated by the Nevada Real Estate Division questioning the legality of the existing agreement. Complaint filing was placed on hold to give parties time to negotiate a new agreement to be voted on by all homeowners. Agreement has not yet been finalized.
Reports are the SGCC has acquired approximately 90 new equity members in 2014. Per the SGCC website, new memberships cost $2,500 and monthly dues are $300 for first year, $350 for second year and $395 for third year. Without any additional equity memberships, this would result in a membership revenue increase of approximately $364K in 2014, $378K in 2015 and $427K in 2016. This does not take into consideration any increase in SGCC revenue derived from their provisional memberships, which purportedly equal the equity memberships (i.e., over 400 total equity and provisional memberships).
2014 year to date financials are not available and represent projections only. However, given the new member trend for the SGCC, one can easily project a break-even scenario without SOA revenue from the existing Lease Agreement. The new member revenue in addition to the SOA revenue guarantees the SGCC a healthy operating profit.
In 2011 there was a fear that if the SGCC continued to lose money, it could face bankruptcy and close up shop, hence the real purpose of the existing Lease Agreement was simply to subsidize the SGCC’s operating losses (albeit it without a homeowner vote) and assure financial viability. There was also the fear (the go brown syndrome) that closure of the SGCC would have a negative effect on property values. However, given the new membership trend it would appear that the SGCC is now reaching financial stability without the Lease Agreement revenue. That is, the new membership revenues offset the revenue currently being provided by the SOA under the existing agreement. Therefore, what would the primary purpose be for any new agreement?
For the SGCC, under the proposed new agreement, they would get $2.75 M from the SOA, from which they intend to build a clubhouse. Yes, they would give up ownership of the SGCC land, but lease it back for $1000/year, a minor expense. The lease term is for 50 years with two 20 year options Therefore, assuming the SGCC continues to operate successfully under their own venue (the most likely scenario given their current trend), it makes absolutely no financial sense to purchase the SGCC land under these circumstances. The assertion that purchase of the SGCC land is necessary to protect property values by having control over what happens to the land if the SGCC goes under becomes a moot point. Given this, it would appear that the primary benefit would be to the SGCC in that the SOA would provide funding, without any payback, for the SGCC to build a clubhouse, with perhaps a few hundred thousand held in reserves for whatever.
Bottom line, the SOA BOD owes it to their association members to fully disclose SGCC financial and membership data. Additionally, what projected expenses the SOA would incur, and its impact on homeowner assessments, to maintain the SGCC land in the event of a default. Only then, can one make an informed decision regarding risks and benefits (or lack thereof) associated with the proposed new agreement.
Somersett United welcomes any comments on the above data and conclusions.